Animation and Gaming Industry in India

Market Research

Market Study
On
Animation and Gaming Industry in India

Table of Contents
1.Executive Summary
2. Animation and Gaming Industry Overview
2.1 Scope of the Industry
2.2 Context
2.3 Global Animation and Gaming Industry
2.4 Indian Animation and Gaming Industry
3. Indian Animation and Gaming Industry: Key Segments
4. Animation Entertainment
4.1 Movies
4.2 TV Broadcast
4.3 TV Advertising
4.4 Direct to DVD
4.5 Service Models
4.6 Revenue Models
4.7 Animation Entertainment Key Players
4.8 Animation Entertainment Challenges
5. Animation Entertainment (VFX)
5.1 Growth Indicators
5.2 Revenue Model
5.3 Key Players
5.4 Challenges
6. Custom Content Development
6.1 Growth Indicators
6.2 Service Models
6.3 Revenue Model
6.4 Key Players
6.5 Challenges
7. Gaming Industry
7.1 Global Gaming Industry
7.2 Indian Gaming Industry
7.3 Console Gaming
7.4 Mobile Gaming
7.5 PC Gaming
7.6 Online Gaming
7.7 Service Models
7.8 Revenue Models
7.9 Key Players
8. Challenges
9. International Outsourcing Trends Implications for India
10. Domestic Trends Implications for India
11. Supply Side Constraints
12. Recent Deals in the Animation and Gaming Industry
13. Future Outlook
14. Player Profiles
14.1 Crest Animation Studios Ltd.
14.2 Toonz Animation India Pvt. Ltd.

14.3 Prime Focus

14.4 Visual Computing Labs (VCL), a division of Tata Elxsi
14.5 Tata Interactive Systems
14.6 India games
14.7 Dhruva Interactive
14.8 Trine Entertainment

1. Executive Summary
The Animation and Gaming Industry in India has undergone a significant change in recent
years. The high expectations of 2006-07 have not been realized, primarily due to the
economic downturn. However, the Indian players have evolved by moving up the value chain
and adopting new service / revenue models. This report attempts to present an overview of
the various segments of the industry (including the size, growth drivers, recent trends,
challenges and future outlook) and profiles some of the leading players.

Animation
The market in India is estimated at USD 500 million in CY 2009 and is expected to grow at
a rate of ~23% p.a. to reach USD 1161 million by 2013. The animation industry in
India has three key segments: Animation Entertainment, Entertainment Visual Effects (VFX)
and Custom Content Development. Among these segments, Custom Content
Development is the largest (~50%) followed by Animation Entertainment and Entertainment
VFX. However, it is the Entertainment VFX segment which is expected to grow the fastest at
~28% p.a. Almost 70% of the revenues of the Indian Animation Industry are from the
outsourcing work done for the overseas clients. Though the demand in domestic market is
picking up, this trend is expected to continue.
Key drivers expected to influence the growth of Animation Industry in India are:
Increased Outsourcing by Overseas Players: The recent economic slowdown has
forced the organizations to increase focus on cost reduction leading to greater
outsourcing to Asian countries, both for Animation entertainment outsourced by
overseas production houses and custom content development outsourced by the
corporate sector.
Greater outsourcing share for Indian players: Indian players currently command
only~8% of the outsourcing work. This is expected to increase, especially with
increasing recognition of the Indian players in terms of providing timely and quality
work.
Significant evolution of Indian Players: Indian players have moved up the value
chain by developing animation content end-to-end. Moreover, the players are
increasingly adopting the Co-Production model (Revenue-Sharing). This trend
opens high revenue opportunities for the Indian players.
Increasing usage of Visual Effects in Bollywood is expected to give a boost to the
industry.
Increasing adoption of e-Learning by corporate sector and higher education
institutions in India is a significant opportunity for Indian players, offering Custom
Content Development.

Gaming
The Indian Gaming market is estimated at USD 239 million for CY 2009 and is expected to
register a growth rate of 53% p.a. to reach 1298 million by 2013. This includes the revenues
both from the consumer market and the services market. The gaming industry comprises
four segments Console, Mobile, PC and Online. Console gaming has the highest share of
42% followed by mobile with 28%. Similar to animation, the gaming services industry also
derives most of its revenues from the outsourcing services.

Key growth drivers for the Indian Gaming Industry are identified as under:

Increased Outsourcing: Similar to Animation, Gaming players overseas are

increasingly focusing on cost reduction leading to greater outsourcing.
Increased share for Indian players: Indian players currently command only ~1% of
the outsourcing market. As the skill-sets of the Indian players improve, this share is
expected to go up.
Increased demand for Gaming (Global & Domestic): Globally, gaming is expected to
continue its growth especially with the trend of Massive Multi-Player Online Role
Playing Games (MMORG) picking up. This is expected to lead to more development,
testing and porting work for Indian players. Gaming, especially mobile gaming in
India is expected to go up on account of increasing mobile and internet penetration
coupled with increased affordability due to falling prices of games.
Key Challenges
The Indian Animation and Gaming industry holds a large potential. However, it faces
numerous challenges in realizing the potential:

Significant talent crunch due to limited training institutions, non-standardized

curriculum and lower awareness among students for animation and gaming as a
career option.
Cultural Constraints: Animation as an entertainment genre in India is still restricted to
kids. Similarly, gaming as an entertainment option is not considered favourable in
India.
Lack of government support in terms of grants, rebates or tax treaties: This limits the
cost advantage that Indian players offer compared to other outsourcing destinations,
thus limiting the growth of the industry.

2. Animation and Gaming Industry Overview

2.1 Scope of the Industry
Animation is a process under which different drawings of imagined action (called frames)
representing a slight shift in the positioning of content are recorded in such a way that it
gives an illusion of motion when shown at a predetermined rate. In a nutshell, it is a time
sequencing of frames to create a simulation of continuous movement.
Animation and Gaming industry includes

Animation Entertainment for Theatrical Movies, TV Broadcast, Advertising, Direct-toDVD Movies / Shows
Visual Effects for Entertainment
Content Development for e-Learning / Training for Special Segments
Gaming
Animation industry, when referred to, in this report, includes all of the above, except
Gaming.

2.2 Context
Indian animation and gaming industry, comprising pre-dominantly small and mid-sized
enterprises is not a well-researched or well-documented industry. We have analysed
information available from Indias industry body NASSCOM (National Association of
Software and Services Companies), recent developments of relevant organizations and
used certain broad indicators (Domestic and Overseas) in this report to assess the industry.

2.3 Global Animation and Gaming Industry

The global animation and gaming industry has grown from USD 74 billion in CY1 2005 to an
estimated USD 115 billion in CY 2009, at a rate of 12% p.a. The industry is expected to
continue its growth, at a rate of 10% p.a. to reach USD 170 billion by CY 2013.

Axis Title

Global Animation And Gaming Marketing

Series 1

2005

2009E

2011P

2013P

74%

115%

140%

170%

The US is the most significant market for animation in the world.

35
30
25
US

20

France
15

Germany

10

Spain

5
0
1

Major markets for gaming are US, Europe and Japan; US again being the largest gaming
consumer. However, China is the fastest growing market for gaming, primarily due to the
Game Publishers

Nintendo

Electronics Arts(EA)

Activision Blizzard

43.2%
39.5%
12.9%
4.4%

57%
38%
5%

50%
43%
7%

Geographic

US
Europe
Japan
Rest of Asia

rapid growth of online gaming. Most of the animation and gaming intellectual properties
originate from these countries. While content development and pre-production activities
are generally done in the originating country itself, it is the labour-intensive activities,
which are outsourced to other countries

2.4 Indian Animation and Gaming Industry

The Indian Animation and Gaming industry has grown from USD 243 million in CY 2005 to
an estimated USD 739 million in CY 2009 at a rate of 32% p.a

In spite of the fast paced growth, Indian animation and gaming industry continues to be a
Miniscule 0.6% of the global industry (Refer Exhibit 5), thus holding a large potential for
growth. The Indian industry is expected to continue its growth at 35% p.a. during 20092013, thus reaching a market size of USD 1.3 billion by 2011 and USD 2.5 billion by
2013.
The Indian animation and gaming industry derives its revenues from both domestic and
outsourcing work. Outsourcing is the major contributor of revenue. Work done by the
Indian studios for the international production houses or work done by game development
companies for international game publishers are examples of outsourcing work. The
domestic share of animation market is estimated at ~ 30% (CY 2009). India caters primarily
to US and UK for the outsourcing work for animation.
The success of Indian IT/ITES industry and the inherent advantages of outsourcing make a
case for India as an outsourcing destination of choice to production houses / game
developers the world over. In spite of this, Indias share of the outsourced work is very low.
Industry experts estimate that Indias share is 8% for animation and as low as 1% for
gaming. Major Asian countries like Philippines, Taiwan, South Korea and China are the
preferred outsourcing destinations for 2D Animation, Canada and UK are the leaders in 3D
Animation. For gaming, China is the most preferred destination followed by other Asian
destination

Indian outsourcing share for animation and gaming industry is miniscule compared to the
Indian IT and BPO industry, which has garnered a significant share of ~51% of the

global IT and BPO outsourcing market. The above shows the immense potential that the
Indian animation and gaming industry holds, especially from overseas outsourcing.

3. Indian Animation and Gaming Industry : Key Segments

The Indian Animation and Gaming industry has four key segments Animation
Entertainment, Entertainment VFX, Custom Content Development and Gaming.

Animation and Gaming

Industry
Animation
Entertainment

Entertainment

Custom
Content
Developmentnt

Gaming

Custom Content Development holds the highest revenue share (51%) among all
segments. This segment comprises development of custom content catering to many
segments (Corporate, Higher Education, Specific segments viz. Aviation, Medical etc.),
multimedia and web-designing services. This segment is estimated to show a CAGR of
23% for the period 2009 to 2013. Animation Entertainment is the next largest, accounting
for 21% of the overall revenues. Animation entertainment comprises animated content
for movies, TV broadcast, TV advertising and direct to DVD. This segment is expected to
grow at 20% p.a. from 2009 to 2013. Entertainment VFX is estimated to be ~ USD 83
Million. It is expected to continue its growth at 28% p.a. from 2009 to 2013. Gaming in
India is estimated at only ~ USD 239 Million. However, this segment is expected to show
a high growth of 53% p.a. from 2009 to 2013. This segment comprises Console Gaming,
Mobile Gaming, PC and Online Gaming.

4. Animation Entertainment
The Animation Entertainment segment in India is estimated at USD 122 Million (CY
2009) and is expected to show a CAGR of 20% (2009-2013) to reach USD 253 million by
2013.

74% of the animation entertainment work in India is outsourcing work for overseas
clients. It is only 26% of the overall animation entertainment in India, which is for
domestic clients.

Most of the outsourcing work in India relates to the labour-intensive production and
postproduction
activities. Production is the dominant activity. Content Development and preproduction
activities are nascent in India, both for the domestic and the outsourcing
market. However, these activities are seen to be emerging as Indian companies move up
the value chain (Refer Exhibit 12)

The Indian animation entertainment industry comprises four sub-segments: Movies, TV

Broadcast, Advertising and Direct to DVD.

The TV Broadcast segment is estimated to be the largest one amongst all the sub
segments at a percentage share of 50%, followed by Direct to DVD at 25%, movies at
20% and TV advertising at 5% of the overall entertainment revenues.

4.1 Movies
The Animation Entertainment movies segment is estimated at USD 24 million for 2009.
Domestic market contributes a significant USD 17 million (71%) to this USD 24 million.

4.1.1 Growth Indicators

Animation movies segment is expected to show significant growth on account of demand
from both domestic market and overseas.
Domestic Demand
Low % of animation movies in India currently and future plans of the Indian film industry
indicate high growth potential for animated movies in India. <1% of the movies released
in India are animated in nature. This is miniscule compared to the US, where animated
movies comprise ~6.3% of the overall no. of domestic releases (Refer Exhibit 15).

Moreover, the no. of domestic film releases in India has been growing at a healthy 14%
p.a. (FY 2006 to FY 2008) (Refer Exhibit 16) and is expected to continue this trend. This
growth in overall movies, along with the significant scope for increase in % of animated
movies signifies the large potential for animation movies in India. This is further validated
by the fact that there has been an increase in the number of animation movie releases
from 2006 to 2008 (Refer Exhibit 17).

The Indian film industry announced 85 animation movies in 2008, with almost all the
major production houses trying to jump on the bandwagon. However, with the economic
downturn and low success of the non mythology animation movies released last year,
many announced projects have been shelved. Despite this, the entertainment industry is
expected to see a significant increase in the number of animation movie releases.
Compared to 6 such movie releases in 2008, there are 28 movies in the pipeline and are
in different stages of conceptualization / production. Out of these, 15 movies are
expected to get released in the next two years. Moreover, Comics players keen-ness to
monetize their existing characters has resulted in their entering the animation movie
market.

Indian publishers like Diamond, Raj, Vimanika and Chandamama have announced
plans to enter the movie space with their famous comic characters
Toonz Animation India Pvt. Ltd is producing a full-length animated feature film based
on a prime property from the library of Chandamama for an estimated amount of
USD 4.5 million
Filmmaker Anurag Kashyap has bought the rights of Raj Comics popular character
Doga.

Demand from Overseas

Overseas demand can be attributed to two factors: Increased animated content overseas
and increase in work outsourced to India.

Increased

animated content overseas

Animation movies released in US have increased at 8% CAGR from 2006 to 2008.

This trend is expected to continue, considering the success of these animation movies.
This success is reflected in the high worldwide box office earnings of these movies
(Refer Exhibit 19).

This whopping success and profits of animation movies overseas are expected to propel
production houses to produce more animated movies. Movies in the pipeline for the two
biggest animation houses in the world Disney Pixar and DreamWorks proves the
inclination of production houses towards greater animation movies: Disney Pixar
released 8 movies in the last two years. It plans to increase the number to 13 movies
from 2009-2012. Similarly, DreamWorks plans to produce 5 movies every two years from
2009 compared to 2 movies a year previously.
Moreover, as seen in Exhibit 19, budgets for the animation movies have increased
considerably from the 2006 levels. However, in view of the recent economic downturn,
the budgets of animation movies are not expected to increase, rather stay at the current
levels.
Increase in work outsourced to India
Higher focus on Cost Savings coupled with Indias cost competitiveness and
demonstrated capability to deliver quality work is expected to drive increase in work
being outsourced to India by production houses.
The economic downturn has put cost on the top of the priority list of the production
houses. Production houses are cutting their costs by outsourcing more work to Asian
countries which offer significant Cost Savings. India offers significant cost savings (>
75%) to production houses overseas (Refer Exhibit 20). Nasscom estimates that the cost
of production of a full length animated movie in India is USD 13 million to USD 22 million,

where-as it costs USD 71 million to USD 106 million to produce the same movie in US.
Moreover, the Indian players have showcased that they can deliver quality work, at par
with their other Asian counterparts. Production houses overseas have recognized this
capability of the Indian players, which is evident from the numerous co-production deals
between Indian and overseas players.

The following co-production deals have been announced in the recent past:
Three-movie co-production deal between Crest Animation Production and Hollywood
film entertainment studio Lionsgate
Toonz Animation and South American studio, Illusion Studios
Two-movie deal between DQ Entertainment and Paris based entertainment company
MoonScoop
As the perceived capability of Indian players grows, the percentage of outsourcing to
India is expected to go up.

4.2 TV Broadcast
The work done by animation companies for TV Broadcast is estimated at USD 61 million
for 2009. More than 90% of the animation entertainment TV Broadcast accrues from
outsourcing.

4.2.1 Growth Indicators

This segment is expected to grow on account of demand from both domestic and
Overseas markets.
Domestic Demand
The increase in number of kids channels and the resulting increase in demand for local
content are expected to drive the demand from the domestic market
Increasing No. of Kids Channels
Cartoon Network was the first one to enter the Indian kids TV broadcast market in 1995.
Since then, there has been a significant increase in the number of kids channels
launched in India.

The share of kids genre in overall viewer-ship has steadily increased from 4.1% in 2002
to reach 16.6% in 2009 (Refer Exhibit 23). Sustained increase in viewer-ship would drive

demand for content for kids, especially animated content. Moreover, Indian comics
players are planning to launch their own cartoon / kids channels. For example, Diamond
comics has already announced plans to launch a TV channel targeted at the 4 to14 year
age group with both animation and live action content.

Increased Demand for Original Indian Content

Demand for original Indian content by the cartoon / kids channels has been increasing.
For example, Cartoon Network the leader in the cartoon channels space has increased
its original Indian content from 50 hours in 2004 to more than 200 hours in 2009.

Similarly, Nickelodeon, inspired by the success of the mythological serial Little Krishna,
is looking to expand its local content. The same trend is expected to be followed by other
channels as well. Growth in original local animation content is expected to get a further
boost from Indian comics players like Diamond, Raj, Vimanika and Chandamama who
are looking to monetize their content libraries by creating market presence in TV
programs. Large production houses are also buying rights from these publishers to
produce animated TV series: Big Animation Pvt. Ltd has bought rights from publishers of
Chandamama to produce an animated TV series. Moreover, a significant number of
nontheatrical
movies are in pipeline for TV broadcast (Refer Exhibit 25), some of the key
examples being Kul Veera, Sulochana etc.

Demand from Overseas

Increased focus on cost savings in view of the economic downturn and improved
capability of Indian animation players are expected to fuel the demand for TV Broadcast
animation from overseas.
Cost Arbitrage
Similar to animated movies, India offers significant cost savings for production of
animated TV serials. Production in India may offer savings to the extent of 78% to
production houses overseas.

 Percentage of work outsourced to India

The proven capabilities of Indian players, with on-time delivery, excellent quality work
have brought them at par with other Asian outsourcing hubs. The Indian players are now
slowly moving towards the higher end of the animation TV broadcast value chain as well.
Capability of the Indian players is also being increasingly recognized, as is evident from
the increasing Co-production deals:
DQ Entertainment has been involved in over 30 global Co-Production deals with
many leading companies like BBC UK, American Greetings Properties, USA, M6,
and
France and alike.
Toonz Animations co-production deal with Spectra Animation of Canada to
coproduce
52 episodes of a Malayalam animated TV serial Paddys Pages.

Sanraa Medias deal with UK based Endemol for the co-production of animated
series The 99.
Improved perception of the Indian animation players capability is expected to lead to
greater percentage of outsourcing to India.

4.3 TV Advertising
Animation Players are projected to have earned revenues of USD 6 million through work
done for TV Advertisers for 2009. Most of these revenues accrued from the domestic
market.
4.3.1 Growth Indicators
Increasing advertising spend of the Indian companies coupled with growing popularity of
animated characters is expected to drive the domestic market. Demand from overseas is
also expected to start picking pace as the Indian animation players gain experience at
animation for commercials.
Domestic Demand
Indian TV advertising spend is minuscule (0.47% of the GDP) as compared to the US
(1.34%) or UK (0.95%), thus holding large potential for growth.

The Indian TV advertisement industry size is expected to increase from USD 1.9 billion
in 2009 to USD 3.3 billion in 2013 at a CAGR of 15%. As the advertising industry grows,
it is expected that the share of animation driven advertisements will also grow. Growing
popularity of animated characters in Indian advertising illustrates the point: Animated

advertisements strike a better chord with the target group of children and young adults,
can be easily understood and related to by audiences irrespective of language and
cultural barriers. Some of the recent advertisements in India that have used animated
characters Daddu (Mentos), Chinta Mani (ICICI prudential), Sukhi and Dukhi (Tata
AIG), have been quite popular. Moreover, the animation commercials also result in
significant cost savings compared to advertisements with celebrities, making another
point for their increased usage.
Demand from Overseas
As of now, the Indian animation players do not get any significant work from overseas for
advertising. However, increasing usage of animation in TV advertising in India is

providing the Indian players with the required experience and capabilities. As the
overseas production houses and advertising agencies face cost pressures and recognize
the capabilities of Indian players, advertising outsourcing deals for India are expected to
happen over a period of time.
4.4 Direct to DVD
Animation Entertainment Direct to DVD is estimated at USD 31 million for 2009.
Domestic market contributes a miniscule 10% (USD 3 million) to this USD 31 million.
4.4.1 Growth indicators
Domestic Demand
The Indian home video market has grown at 23% p.a. for 2005-2009.

The increase is expected to impact demand for animated content also. There is increase
in retail reach of DVDs in India. Moreover, falling prices of CDs / DVDs is leading to
increased affordability. Improved penetration and affordability are expected to drive the
growth of the Indian home video market at 13% p.a. from 2009-2013. This trend is
expected to encourage greater production of direct-to-DVD content in India.

Demand from Overseas

Direct-to-DVD animation content in overseas markets and the extent of outsourcing
primarily determine the demand for animation services for Direct to DVD in India.
Lower Direct-to-DVD (DVD Premieres) Overseas
Direct-to-DVD (DVD Premieres) in the US has seen a very high growth of 72% from
2006 to 2009. However, the DVD sales / rentals market has stagnated and is showing
a downward trend from its highs of 2005-06.

However, the advent of new channels like on demand television and online distribution is
expected to keep up the demand for DVD Premiere.
Increased Outsourcing
The cost differential of producing Direct-to-DVD animated content between US and India
is very high. Nasscom estimates that it costs USD 3 million to USD 5 million in India for
an animated DVD compared to USD 9 million to USD 12 million in the US (Refer Exhibit
32). As discussed earlier, the increased focus on cost savings is expected to lead to
greater outsourcing to Asian countries. As capabilities of Indian players get recognized
by international studios, Indian players would gain a significant share of the outsourcing
opportunity in the Direct to DVD Segment.

4.5 Service Models

Players in the animation entertainment industry in India follow various service models.
Every player in the industry follows one or more of these service models.

The animation entertainment service models lie along different parts of the value chain.
Depending upon the service model that a player adopts, he can be present across the
value chain or in certain specific parts of it. Players also adopt multiple service models:
for e.g. the same player may operate on service delivery model and co-production
model, varying from one deal to the other.
4.6 Revenue Models
The players in the animation entertainment industry can realize revenues from different
sources depending upon the model that they adopt. The different revenue models for the
entertainment industry are:

As players adopt multiple service models, they would also have multiple revenue
streams.
4.7 Animation Entertainment Key Players
The Indian animation entertainment industry is a fragmented industry, with the top 10
players contributing less than 20% of the industry revenues. Moreover, they compete
along the different stages of the value chain. There are players who are present across
all the stages of the value chain and there are others who provide services during
specific stages of the value chain only. Some of the key players have been listed below,
along with their presence in the value chain:

4.8 Animation Entertainment Challenges

While the Indian animation industry holds a large potential in terms of both domestic and
overseas demand, the industry needs to overcome significant challenges to realize this
potential:
Lack of Skilled Manpower
Skilled man-power is the key for producing animated content. The Indian animation
industry is constrained on the talent supply side. As per Nasscom Industry Report 2009,
manpower requirement for animation in India is expected to grow from 17,500 in 2009 to
29,500 by 2012. However, there are not enough resources available in this industry, and
those who are available are not readily employable. This is primarily due to the following
reasons:
Low awareness of animation as a career option: This is especially true of Tier-2 and
Tier-3 cities in India.
Existence of only a handful of institutes that provide relevant courses / degrees in
animation and gaming, the leading institutes in this domain being National Institute of
Design, Toonz Academy, Maya Academy, Arena Animation.
Lack of standardized and quality curriculum: Post-graduate / Degree / diploma
courses in animation are few in no. in India. Curriculum is not up to the international
standards, thus decreasing the employability of students in India.
Lack

of Funding
Animation Entertainment industry in India pre-dominantly comprises small and medium
sized players operating across similar / different parts of the value chain. Currently, only
1 out of 5 movies in India are successful, making the production of Animation films very
risky. Players are not able to raise the required finance.
IP Protection
Rampant piracy of DVD-Based videos within the distribution channel eats into a major
share of revenues for the producers and distributors. This along with slack IP laws and
weak enforcement discourage animation players in India to produce their own IP.
Moreover, it also discourages International Players, who are generally very protective of
their IPs, to outsource to India.
Cultural Constraint
Unlike mature markets abroad, where animation is seen by everyone, Indians still have
the animation-is-for-kids mindset. This impedes the growth of domestic market in India.
Lack of Government Support
Competing outsourcing destinations e.g. Canada, UK have signed tax treaties with the
US. This encourages growth of animation in the country. Indian animation players lack
any such Government support either through tax rebates or grants.

5. Animation Entertainment (VFX)

The Entertainment Visual Effects (VFX) industry has registered an unprecedented
growth of 53% over 2005-2009 and is estimated at USD 83 million in 2009. This segment
is further expected to grow at 28% p.a. to reach USD 223 million by 2013. 40% of
revenues of VFX Players accrue from work done for domestic market.

5.1 Growth Indicators

VFX growth is expected to be propelled by demand from both the domestic market and
the overseas market.

Domestic Demand
Increased adoption of VFX and an increase in VFX budgets in movies are expected to
drive the domestic demand.

Increasing no. of movies with greater VFX Usage

Success of movies with VFX Usage and entry of comics players in the movie space are

expected to drive the usage of VFX in movies in India. Indian film industry produces
maximum number of movies in a year globally. 1325 movies were released in 2008, this
no. having grown from 1016 releases in 2006 (Refer Exhibit 16). Usage of VFX in Indian
films has considerably increased: VFX has been used in a lot of recent releases e.g.
New York, Taare Zameen Par, Rab Ne Bana Dee Jodi, Jodhaa Akbar. Moreover, the
movies which have used VFX extensively have been amongst the top grossers of their
respective launch years (Refer Exhibit 39). The success of these movies at box office is
expected to be a strong driver for production houses to have significant VFX content in
their upcoming movies.
Entry of comics players in the movie space: In the US, on an average (2004-2009),
six movies have been produced every year, which are based on comics or graphic
novels.

This trend could catch up in India as well, as some players are already planning to make
movies based on comic characters.

Increase

in VFX budgets

The Indian movies have very low budgets for visual / special effects. On a VFX budget
index, India is way below the US levels. The VFX budget in Hollywood ranges from 3.5
million to 8.8 million, whereas the Indian film industry is typically spending a maximum of
USD 0.20 million only for Visual Effects. Increase in VFX Budgets for the Indian movies
is expected to boost the Entertainment VFX segment in India.

Pre-Visualization

Trend

Pre-Visualization trend is a technique where-in the shots can be visualized on computers

before they are actually shot. This increases the efficiency of production and reduces
cost of production. Growth of this trend would contribute to increased overall usage of
visual effects.
Increased

usage in broadcast and advertising

Usage of VFX in broadcast helps in significant reduction of costs. Its usage brings down
the set creation costs for a broadcast by almost 60-65%, particularly for mythological
shows. It also helps in costs savings of 30-40% for commercials.
Demand from Overseas
Increased usage of VFX and increased outsourcing are expected to drive higher demand
from overseas markets:
Increased

VFX Usage

The VFX extensive movies overseas have done exceptionally well at box office. Most of
the movies which had significant VFX were amongst the top five grosser for that year
(Refer Exhibit 42). Whopping success of the VFX extensive movies is expected to drive
the VFX usage in other movies as well.

Increased

outsourcing
Increasing cost pressures on production studios overseas, coupled with the cost
savings offered by Indian players and growing capability of Indian players in VFX is set
to increase the outsourcing of VFX work to India. The Indian players are also increasing
their presence overseas to tap the international market and build an outsourcing pipeline
for their Indian studios:Century Communications Limited (CCL) promoted Pixion has
acquired two Londonbased
studios, Men-From-Mars and Molinare
Pixion also plans to acquire a studio in Los Angeles.
The Tata Group promoted Tata Elxsi has launched a new facility of Visual Computing
Labs (VCL) in Los Angeles, aiming to expand its footprint in the overseas markets.

5.2 Revenue Model

The revenue model used for Animation VFX is Work for Hire model, where revenues
are generally realized on a per hour basis.

5.3 Key Players

Indian VFX is a fragmented industry, with the top 5 players commanding ~ 20% of the
overall industry. They key players in Animation VFX in India are:
Tata Elxsi
Prime Focus
DQ Entertainment
Pixion
Prana
5.4 Challenges
Major challenges faced currently by the VFX industry are:
Lack

of Skilled Manpower
Similar to animation entertainment, there is a considerable shortage of skilled manpower
for VFX in India. There are very few institutes that provide formal courses on VFX. The
studios therefore have to employ people with inadequate skills, which lead to an inferior
quality of work.
Lower

budgets for VFX in India

The average budget for VFX in Indian movies is almost one fifth of that in a Hollywood
movie. The average budget of a Hollywood movie ranges from USD 3.5 million to USD
8.8 million, whereas, the Indian movies have an average VFX budget of USD 70,000 to
USD 150,000. This limits the quality of VFX in the movie.
Categorization

of VFX in India as a post production activity

VFX is used at all stages in Hollywood, whereas, its still considered as a postproduction
activity in India. The quality difference between a Hollywood movie and an
Indian movie can be attributed to some extent to the limited usage of VFX in Indian
movies. The limited usage of VFX results in limiting its scope and ability to deliver high
quality.
Lack

of Government Support
Similar to Animation Entertainment, the Entertainment VFX segment may be boosted by
Government support in the form of tax rebates or grants.

6. Custom Content Development

Custom Content Development, estimated at ~ 295 USD Million (2009) has grown at 35%
p.a. (2005-09) and is expected to continue its growth at a healthy rate of 23% p.a. (200913) to reach USD 685 Million by 2013.

As per leading players in the industry, >90% of custom content development in India is
outsourcing work.

Custom Content Development initiates with sourcing of the content and preparation of
the script / storyboard followed by creation of the content and migration of the same on
the required platform. The platform on which the content finally resides may be a CD /
DVD, website, or a Learning management System depending upon the customers
requirements.
Educational institutes: Schools (K-12), Higher Education Institutes for their e-Learning
requirements, Corporate for their employee training / internal communication / web-site
designing services / marketing collateral and industries such as Aviation, Defence, for
special training requirements are customers of this segment.

6.1 Growth Indicators

Demand from overseas is expected to be driven by greater outsourcing of custom
content development. The domestic market which constitutes only 10% of revenues
currently (Refer Exhibit 44), is expected to increase its share, driven by increased
adoption of e-Learning by corporate and higher education institutes in India.
Demand from Overseas
Major markets for e-Learning globally are the US and select European nations across
both educational institutions and Corporate Sector for training purposes. Demand from
overseas is expected to increase on account of the following factors:
Increased

outsourcing of Learning Content Development by Corporate Sector

Custom Content Development outsourcing by the Corporate Sector in the US has seen
an increasing trend from 2006 to 2008. Exhibit 46(a) and 46(b) show the percentage of
organizations across specific sectors, which outsourced their training content
development requirements.

These exhibits clearly show: While the outsourcing trend for certain sectors has stayed
the same, outsourcing trend for certain other sectors viz. Healthcare / Medical, BFSI and
Business Services / Consulting has increased significantly. As the organizations focus
more on Cost Savings, this trend is expected to continue.
Increased requirement for content
Content requirement for corporate e-Learning is expected to grow at 11% p.a. (2009-13).

This increased requirement for content, along with greater propensity of corporate in the
US to outsource custom content development promises a large opportunity for custom
content development companies in India.
Domestic Demand
E-Learning Demand from the Corporate Sector
As per a survey conducted by Tata Strategic Management Group for specific industry

verticals, adoption of e-Learning among small and mid-sized organizations in India is

very low. However, most of these small and mid sized companies have shown
willingness to adopt e-learning, the main drivers being cost savings and wider reach.

This clearly shows the immense potential that e-learning holds in India among corporate.
Adoption

of e-Learning by Higher Education Institutes

Current adoption of e-Learning by higher education institutes in India is abysmally low.

Compared to the US where close to 95% of the higher education institutes have adopted
e-learning solutions, a sample survey across a Tier 1 city in India reveals the adoption of
e-Learning to be less than 15% by Indian institutes. With increasing awareness of the
elearning
models and its associated advantages, adoption of e-learning is expected to
increase in Indian higher education institutes.

In fact, a large percentage of Institutes offering professional courses showed high

willingness towards adoption of e-learning solutions. These e-Learning solutions are
expected to improve quality of learning and differentiate the Institute from the others.

This clearly shows the large potential that higher education institutes hold for e-Learning
players in India. Such increased adoption of e-Learning solutions would lead to
requirement of content that would positively impact animation players revenues.
Increased

Government focus on Information, Communication, Technology (ICT)

for schools
The Indian Government has been focusing on ICT in schools, which is seen in their
increasing spends (Refer Exhibit 53). This spend is expected to move up even further,
thus presenting an increased business opportunity for the e-learning players and content
providers
.
Increased Online Advertising
Online advertising in India is expected to show a growth of 28% p.a. (2009-2013). This is
expected to lead to greater demand for web-design services. Animation players
providing such web-design services would find this a positive development.

6.2 Service Models

Players providing custom content development follow different service models, which lie
along different parts of the value chain. Depending upon the service model that a player
adopts, he can be present across the value chain or in certain specific parts of it.

Companies typically follow different service models, varying from one project to the
other.
6.3 Revenue Model
Players in the Custom Content Development space can realize revenues from different
sources, depending upon the model that they adopt:

6.4 Key Players

6.5 Challenges
While custom content development holds a large potential in India, there are numerous
challenges which need to be overcome for it to realise its potential:
Lack

of subject matter experts

Engagements for custom content development may be specific to a particular subject /

course. To make the content / instructional design relevant and interesting, the eLearning custom content developer ropes in subject matter experts. It becomes
challenging for the service provider to recruit or empanel subject matter experts for niche
courses.
In addition, growth of the domestic sector faces the following challenges:
Cultural

Constraint

The Indian mindset lays significant importance on human interface for teaching or
training. Therefore, they find it difficult to accept an e-learning product replacing face-toface
interaction, partially or fully
.
Lack of Government Thrust
Most of the institutes that are government aided do not have enough budgets to afford
elearning.
As there is a cap on the maximum fee that may be charged by these institutes,
this extra cost of e-learning cannot be passed on to the students. Such institutes shall be
able to adopt e-Learning only if there is enough thrust from the Government towards the
same.

7. Gaming Industry
7.1 Global Gaming Industry
The global gaming industry is estimated at ~ USD 40 billion (CY 2009E) and is expected

to grow at 10% p.a. to reach USD 59 billion by 2013. Key segments for gaming are
Console Gaming, PC Gaming, Online Gaming and Mobile Gaming. North America,
Western Europe and Japan lead the gaming market. However, China is the fastest
growing market especially for online gaming.
7.2 Indian Gaming Industry
The Indian gaming market is estimated at ~ USD 239 million (CY 2009) and expected to
show a CAGR of ~ 53% to reach USD 1.3 billion by 2013.

This includes the work done by the Indian operations of the Gaming Players. This
represents revenues from both the consumer market and gaming services.
Gaming consumer market in India comprises:
PC Gaming: Revenues from the gaming software sold through CDs (including
legitimate, grey and pirated markets)
Mobile Gaming: Software revenues through mobile downloads
Console Gaming: Revenues from sale of hardware such as gaming consoles
(legitimate and grey markets)
Online Gaming: Advertising and subscription revenues from online games
Gaming services market in India comprises:
Outsourcing development services
Ancillary services such as voice and email BPO support to MMOG (Massive
Multiplayer Online Games) gamers worldwide, porting, testing, etc.

7.2.1 Key Segments and Value Chain

Among the various segments, in India, Console Gaming is the largest with 42% of the
market share (CY 2009).

There are multiple stages involved in gaming, right from concept creation and feasibility
testing to final testing.

It is the development and post development activities, as shown in Exhibit 62(a) which
are outsourced. The Indian gaming players play a limited role in concept creation and
pre-production. It is limited to a handful of players, who develop their own games,
primarily for the Mobile and Online platforms.

7.3 Console Gaming

Indian console gaming market is estimated at ~ USD 97 million (2009) and expected to
grow at 50% p.a. to reach ~ USD 489 million by 2013. A significant percentage of the
console gaming consumer revenues (Refer Exhibit 63) is shared with the console

hardware manufacturers / software publishers: International Players viz. Sony, Microsoft,

Nintendo, Ubisoft, Electronic Arts etc. Moreover, the margins involved in this
distributionbusiness are very low. Hence, it is the Consumer Gaming Services market which
has
been analysed from the growth perspective.
7.3.1 Growth Indicators
Currently, the revenues from console game development services are only ~ USD 7
million. These revenues are completely derived from providing services to international
companies. It is the growth of console gaming overseas and extent of outsourcing to
India, which would determine the growth of console gaming services in India.
Increase

in production of console games overseas

Global console software market is expected to grow at 11% p.a. till 2010 (Refer Exhibit
64). This implies a greater need for game development services, which indicates a
growing opportunity for Indian console gaming services players.

Increase

in outsourcing to India

There is a significant cost differential between the production costs in India and that in
US. Nasscom estimates that it costs USD 11 million to 18 million in India for a console
NGN (Next Generation) game development compared to USD 18 million to 44 million in
US for the similar work. Growth of console software globally coupled with the high cost
savings offered by Indian console game services indicates large opportunity for gaming
service providers in India.

7.4 Mobile Gaming

Indian mobile gaming market is estimated at ~ USD 66 million (2009) and expected to
grow at 66% p.a. to reach ~ USD 496 million by 2013. Unlike console gaming, which is
completely dominated by games from international publishers, mobile gaming consumer
market in India comprises games from both the Indian publishers (e.g. Indiagames,
Mobile2win) and overseas publishers. Mobile consumer gaming revenues in India (Refer
Exhibit 66) includes the consumption of games from international and Indian publishers.

In India, Indian mobile gaming players earn revenues from Distribution of mobile games
for international publishers (Small percentage of the overall revenue accrues to the
Indian gaming player with a low profit margin) and Publishing their own games and